Interest in Corporate M&A High, but Financing Still an Obstacle

Salient points:

• Average deal value is up 25% in 2011 versus 2010 and stands at $301 million.
• Value is partially attributable to an increase in "mega deals" (greater than $5 billion).
• Total volume is relatively flat year-over-year due to the difficult environment of the last few months.
• Corporates (a.k.a., "strategics") with large cash reserves can still get deals done.
• It's harder for private equities to make purchases.
• Many auctions are failing because financing is hard to find and prices are too high.
• Some deals are going for double-digit EBITDA multiples.
• Excess cash on the balance sheets of strategics is at record highs.
• Over $1 trillion of "dry powder" is available.
• This is driving the uptrend in acquisition pricing.
• More corporations are gearing up for divestitures, and some are still open to considering the IPO market.
• IPO filings are still active, even though IPOs are not.
• Groupon is slated to begin its roadshow next week.
• 2011 is projected to be a record year for health care M&A.
• The fastest growing sectors are long-term care, medical devices, hospital and pharma, and, interestingly, physician practices.
• Physicians are concerned about specific risks (e.g., litigation or unclear consequences of Obamacare) and are merging in the hope of stabilizing income in coming years.
• Deficit reduction may have a short-term negative effect on deal flow, because of a decrease in available cash in the economy and because of unclear tax consequences.
• The 2012 elections also create uncertainty.